WELCOME MESSAGE

THIS IS YOUR LUXURY MARKET REPORT

MAP OF LUXURY RESIDENTIAL MARKETS

Welcome to the Luxury Market Report, your guide to luxury real estate market data and trends for North America. Produced monthly by The Institute for Luxury Home Marketing, this report

provides an in-depth look at the top residential markets across the United States and Canada. Within the

individual markets, you will find established luxury benchmark prices and detailed survey of luxury active and

sold properties designed to showcase current market status and recent trends. The national report illustrates

a compilation of the top North American markets to review overall standards and trends.

Copyright © 2022 Institute for Luxury Home Marketing | www.luxuryhomemarketing.com | 214.485.3000 The Luxury Market Report is a monthly analysis provided by The Institute for Luxury Home Marketing. Luxury benchmark prices are determined by The Institute. This active and sold data has been provided by REAL Marketing, who has compiled the data through various sources, including local MLS boards, local tax records and Realtor.com. Data is deemed reliable to the best of our knowledge, but is not guaranteed.

NORTH AMERICAN LUXURY REVIEW

Where is the Luxury Real Estate Market Headed?

It is hard to picture that less than 12 months ago, the luxury real estate market was on a strong upward trajectory, consistently seeing demand increase, prices soar, and inventory levels fall.

Even though we realized that this trend could not continue infinitely, the speed at which the market appeared to turn in May 2022 seemed almost as dramatic as the upswing in May 2020 at the start of the pandemic.

Although the tables changed earlier this summer, with the number of homes listed for sale climbing for the first time since the start of the pandemic, there was still a feeling that while there would be a transition, it would be more gradual, eventually settling into a traditionally paced market.

Instead, what we saw over the last few months was a turmoil of differing opinions about the current status, media hype of doom and gloom, and expert contradictions about the future of the luxury real estate market.

The simple truth is that both the economy and the real estate market are in a state of unpredictable flux, when even traditional methods, such as raising interest rates, are not achieving the desired results as inflation increases. In September, U.S. inflation rose to 6.6%; in Canada, it is currently 7%.

In some locations, we see the severe impact of this increase in interest rates on the number of sales, whereas, in others, the lack of inventory is still playing heavily in the seller’s favor. Some buyers are feeling the affordability squeeze because of the additional increase in the cost of borrowing. Yet, with very few sellers needing to put their homes on the market, inventory levels remain historically low, leaving even cash buyers without the negotiating power typically expected in a transitioning market.

The reality is the factors of how buyers and sellers are reacting combined with influences from outside the industry are creating conflicting messages that are resulting in strange times throughout the real estate market.

It may be a surprise to discover that our analysis for September shows that many markets remain favorable to sellers for both luxury single-family and attached properties.

Last month we reported that 106 of our 140 single-family markets were still favorable to sellers. While 16 have transitioned to balanced – where the market is equally favorable to sellers as it is to buyers – 90 remain seller’s markets.

In the attached market, of the 96 markets reported on by the Institute, 77 remain seller’s markets.

It seems that there are still plenty of buyers – indeed, a survey by Bank of America found that the young and wealthy prefer assets like cryptocurrency, real estate, and private equity over investing in the stock market.

“Individuals ages 21 to 42 with at least $3 million in assets have only a quarter of their portfolio in equities, compared with more than half for those who are older”, according to the study.

This is significant, especially for the future, as Baby Boomers are estimated to transfer over $84 trillion of their wealth to Generation X and millennials between now and 2045, according to market research by Cerulli Associates.

A Trend Toward Balanced

Coming back to the current status, it is important to realize that most luxury markets are starting or transitioning toward more favorable conditions for buyers as inventory levels steadily climb month over month.

As of September, the sales ratio, which measures the monthly sales against the remaining active listings at the end of the month for both single-family home and attached property markets, saw a further shift downwards towards the 21% threshold mark, which signifies a change from seller to a balanced market.

However, there is an anomaly in the claim that inventory levels are rising – the reality is that they are also increasing because homes are staying on the market longer. More choice has slowed the velocity of sales compared to 2021, but the lack of new inventory has equally slowed.

September’s increase in new inventory is typically one of the largest of the calendar year, escalated by individuals returning from the vacation season with new plans; it kicks off the second busiest season in real estate. While the actual number of properties for sale in September 2022 rose significantly compared to September 2021, an increase of just 6% from August 2022 is well under the traditional expected norms of a 12-18% increase between these two months.

But it would be unrealistic to expect the extraordinary results of 2021, where the number of sales was greater than the remaining inventory each month. Nor should we expect to see many sales closing over the asking price and even fewer multiple offers – all typifying a directional transition toward a more balanced market.

Will a Buyer’s Market Happen?

Given the time of year, the current economic influences, and the uncertainty surrounding real estate demand, it is still hard to predict when or even if the luxury market will fully become a buyer’s market.

September’s numbers indicate an overall shift. However, as we head towards the winter months when typically, less inventory enters the market, we may see that ratio climb back up, especially if current sellers whose properties have been on the market for some time start to drop their prices further and attract more sales.

Much might also depend on whether we enter a recession. Currently, interest rates being hiked, stock markets falling, and companies scaling back their workforce are causing homebuyers to put on the brakes.

But, if we do go into a recession, interest rate hikes will be less likely as governments will look for people to start spending again to drive the economy. This will mean the cost of borrowing money will either stall at its present rate or even fall, creating more favorable conditions for purchasing real estate again.

All this speculation translates into a disconnect within the market, especially where sellers are not ready to drop their prices and buyers are looking to negotiate. But while economists and real estate experts debate the future, it is obvious that the luxury real estate market has started to go through a correction, and its overall status has shifted direction.

Those looking for investment opportunities are focusing on the newer and second home markets, which saw some of the biggest price increases during the pandemic, as indications are that prices, although not lower than September 2021, have decreased in the last six months.

Contrary to this, other markets are seeing their sellers hold off, not wanting to trade their low mortgage rates for considerably higher ones, or realizing they have missed the peak, they are simply not putting their homes up for sale. This means that inventory levels are not increasing at the expected rate, which will slow the fall of home prices for these markets.

Equally, there is still a housing shortage in many luxury markets, albeit a highly varied one depending on the location and price point. However, in certain high-demand communities, there simply isn’t any inventory available because it was all snapped up during the last two years.

One thing is certain, now more than ever, it is important to work with a luxury property specialist to ascertain what is truly happening in your local marketplace. The art of selling and buying in this market needs a critical and analytical approach; understanding the realities and setting expectations accordingly will ensure that goals are achieved.